Hilo Hattie markets its Nimitz lease

Hilo Hattie is shopping around the ground lease to its Nimitz Highway store with the intention of raising several million dollars to open multiple stores over the next two years, all but one of them on Oahu.

The company has about 50 years left — with options to renew — on its lease with the Harry and Jeanette Weinberg Foundation for the 700 N. Nimitz Highway property on about two acres of land.

Hilo Hattie Executive Vice President Mark Storfer told PBN the company intends to sell its leasehold property with terms for a lease-back to the company, and that it has no intention of moving out of the building any time soon.

“We would negotiate whether we stay for 10 years, or 20, or the full 50,” Storfer said. “The ideal result is the investor purchases the leasehold interest from us and we sign a long-term lease, remain at this location and use the capital we would get from the sale toward our growth and expansion plans.”

Hilo Hattie is working with Jones Lang LaSalle to solicit offers from potential investors.

Bill Froelich, vice president of Colliers International Hawaii’s industrial division, said these types of sales happen often in Hawaii as investment vehicles for potential buyers.

“In a leasehold sale there is no exit, because the master lessor takes it back at the end of the 50 years,” he said. “They’re going to have to get a higher rate of return during that lease period to justify their purchase price and satisfy their internal rate of return.”

Hilo Hattie’s asking price has not been disclosed, but Storfer did say that it needs “several million dollars” to execute its expansion plan over the next two years.

Its new strategy is to open smaller, strategically placed stores, primarily in Waikiki. The “Best of Hilo Hattie” kamaaina collection stores would be similar to the 2,100-square-foot store the company opened at Ala Moana Center about a year and a half ago that replaced the 8,375-square-foot store it had for 15 years on the other side of the shopping center.

Storfer said the new concept is performing “phenomenally well” for the company.

The ideal locations for the first boutique stores would be on Kalakaua Avenue and in a major hotel, both in Waikiki. Then, in 2015, Storfer said, the company plans to open another two stores, one on Oahu and one in a visitor hub such as Kaanapali on Maui, Waikoloa on the Big Island or Poipu on Kauai.

Hilo Hattie has been trying to open a store in Waikiki for about the past decade. It signed a lease with Kamehameha Schools in 2005 with the intention of opening a store at the Royal Hawaiian Center in the spot currently occupied by Forever 21. Instead, Hilo Hattie filed for Chapter 11 bankruptcy and gave up the lease because it could not invest the needed $6.5 million to build out the store.